Cash Flow - Does having a "Reserve Fund" change the calculation?

[Melanie Lashus]

Background: I have a rental property that I self-manage with great tenants that is recently remodeled. I personally lived in this property for 3 years, and the tenants have been there for almost a year. I’m keeping an eye on the math to decide if I want to keep it as a rental property, or sell it in the next year or so and invest elsewhere... As one data point in my decision, I’m looking at cash flow. I also work a full time W2 job.

My Questions:

1. Once you have an adequate “reserve fund” in place (which I feel that I do), what expense items should still be calculated into the cash flow?

• I'm currently using: Cash Flow = Monthly rent – Mortgage – CapEx (5%) – Vacancy (5%) – Repairs (5%)
• However, besides the mortgage, I’m not really having regular expenses and so that set-aside money is just building up in the reserve fund (yay!).
• At this point, I feel the reserve fund would cover several months of vacancy and cover any major repair issue short of complete disaster (yes, I have insurance).
• At what point should I just consider the money I’m setting aside for CapEx, Vacancy, Repair as part of the cash flow? I want to use it toward something else – to buy more doors. (Obviously if I dipped in the reserves I would have to add that set aside back in for a while to re-build it…)

2. What do you consider an adequate “reserve” fund?